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Every Tuesday I publish a response to Real Estate questions from local Arlingtonians on www.ARLNow.com. Here you can access all of my posts. Feel free to submit questions you'd like me to respond to in future columns by sending an email to Eli@RealtyDCMetro.com.

Question: As interest rates have increased over the last 6-12 months, how will the market react to higher rates and do you expect them to come back down in 2018?

Answer: The rates I’m seeing today are about 1-1.5% higher than what I’ve seen on average over the last few years and about .5% higher than where they’ve been over the last 6-12 months. Generally, most economists are projecting growth in the US and there are similar signs in Europe so if that holds true, expect interest rates to continue their upward trajectory.

Higher Mortgage Rates In 2018

According to Freddie Mac, the average Mortgage rate from the 1970s-2000 was about 7%, the average rate from 2000-2008 was 6% and we’ve been hovering around 3.5-4% since 2008. Freddie Mac currently predicts that rates will reach about 5% by the end of 2018.

Mortgage rates are at the mercy of the US and global economies so predicting their direction is no different than predicting how the stock market will do.

Contrary to popular belief, mortgage rates are not directly correlated to the Fed rate that you regularly hear about in the news. So when you hear that the Fed is planning to increase rates by .25%, that does not mean your mortgage rate will be .25% higher the following day. See chart below for historical trends of Fed rate vs mortgage rates:

We are currently experiencing high daily and weekly volatility in mortgage rates, which is frustrating for many. Some weeks see swings of .25% so you can either benefit or lose out from those swings based on when you lock your rate. Discuss this risk with your loan officer.

You may have missed the lowest rates over the last few years, but historically mortgage rates are still well below average as you can see from the chart below from Freddie Mac:

The Impact Of Higher Rates

For my clients, the ones who feel the rates increases the most are those who have been in the market for 6-12 months but have not purchased yet either due to lack of suitable inventory or urgency.

It’s tough to accept that rates were about 1% lower when they started looking and now they feel like they’ve lost. Those who are just now entering the market tend to be much better at brushing it off. It also impacts my clients who are not also selling a home because those who are selling will realize the benefits of the stronger market vs those who are just buying are at its mercy.

First time buyers are also more sensitive to rate fluctuations because most are already struggling to adjust to the hefty price tag of buying what they want in the DC Metro area.

Redfin recently asked 4,000 buyers who planned to purchase in the next 12 months how increasing rates would impact their purchase and found that only 6% would cancel their plans to buy while nearly 50% wouldn’t change anything or would increase their urgency to buy.

This might seem like a good result for homeowners, but losing 6% of buyers, having 21% reduce their budget, and 27% waiting for rates to drop is a bad sign. Especially if rates continue to go up and the 27% who were waiting for rates to drop decide to either stop their search or reduce their budget.

I think the biggest reason increasing rates will slow the market is the psychological effect of higher rates vs the actual impact to buyers’ budgets. For buyers struggling to internalize the “loss” they’ve taken now that rates are higher, consider the following:

On a $400,000 loan, a .25% increase in rate represents $60/month. Try to decide if a $50-$150 change in your monthly mortgage cost is worth giving up on a home purchase or compromising on what you want/need. Most buyers decide to spend less than what they’re approved for, so there is usually some cushion.

The reason rates are higher is because the economy/stock market have done so well lately so your investments and/or income are hopefully increasing at a rate on pace with or above what you’re giving up in increased mortgage rates.

In 2017 the S&P 500 returned about 20% to investors so maybe you earned enough in the market to allow for a higher down payment?

Hopefully the net effect of everything that factors into mortgage rates is still positive for you.

With so much volatility around mortgage rates, it’s even more important that your lender be able to advise instead of just being a pass-through for today’s rates.

My clients have found Jake Ryon of First Home Mortgage (jryon@firsthome.com) and Troy Toureau of McLean Mortgage (ttoureau@mcleanmortgage.com) to be valuable resources during their home purchases and I’d encourage anybody to reach out for advice.

Question: I’ve submitted two offers on home this year and both times lost to multiple offers. Is this normal or is the market more competitive this year?

Answer: 2018 has been a good year for sellers and a frustrating one for buyers already. Generally, I don’t start seeing multiple offer deals until late February/early March, when it starts to warm up and days get longer.

However, about 80% of the listing and purchase deals I’ve been on this year have ended up with multiple offers. I even had a listing that had been on market for three months receive three offers in one weekend. My colleagues who work in new construction and generally have the best pulse on market pace have also been surprised by the amount of activity this early.

Here are some numbers in Arlington from January to back up the anecdotal evidence of a hot market:

Supply Down, Demand Up: Monthly of supply measures how long it would take to sell all existing inventory at the current market pace (supply and demand) is down 21% YoY and at its lowest levels (1.31 months of supply) since March 2013 (1.22 months of supply)

More Homes Under Contract: Over 200 homes went under contract in January (215) for the first time since 2012 (219)

Homes Under Contract Faster: Of the 119 homes that were listed and went under contract in January 2018, 69% went under contract within one week. Over the last five years, 49% of homes listed and under contract in January went under contract within one week.

Average Number Of New Listings: The amount of new homes listed on market in January 2018 (234) is about average for what we’ve seen over the last decade

Advice For Buyers

Periods of low inventory and high demand can be frustrating for buyers, so here are a few tips for buyers to create leverage for themselves without simply paying more:

Quality Of Lender: Have a pre-approval letter from a strong local lender who has review all relevant documents, not just somebody who checks credit score and asks for basic financial information. A strong lender letter gives the seller confidence you will close on the home on time, without complications.

Contingencies: Consider giving up your right to request repairs and credits after the home inspection and using a Pass/Fail contingency instead. This shows that you’re not interested in nickel and diming a seller, but just want to make sure there are no major issues. You can also offer to cover up to a certain dollar amount in the event of a low appraisal, if you are offering to pay above the asking price.

Close Faster: Most homeowners want to close as quickly as possible. A good lender can have you ready to close in 20 days vs the more common 30-40 day close.

Don’t Play Games: We all want to negotiate a great deal, but oftentimes a great deal is actually having your offer accepted not saving a few thousand dollars. When a seller has multiple similar offers, they often put more weight in who they think is most likely to close with the least complications. In that scenario it pays off to make it clear how much you love/want the home instead of acting like you could take it or leave in an attempt to negotiate a lower price.

Days On Market: The number of days a property has been on market should dictate how you approach an offer. You won’t have much leverage in the first few weeks or after a major price reduction.

The spring market can be a great time for buyers who are prepared for competition because you’ll see a significant increase in inventory, so that illusive 2 bedroom + den or half acre yard with a deck is more likely to materialize.

If you’re not prepared to make a strong offer, the spring can be frustrating and defeating because you may watch your dream home(s) go to other buyers who have made smarter, but not necessarily higher offers.

Question: A big reason I chose to live in North Arlington and pay the premium that comes with it is because most of the neighborhoods were full of large, mature trees.

I’ve watched over the last 5-10 years as so many beautiful trees have been removed to make room for large new homes, only to be replaced by small trees that don’t survive or aren’t fit for this area. What can we do to educate homeowners about the value trees have in the community and on home values?

Answer: Thank you so much for this question, especially on the heals of a terrific study on Arlington’s tree canopy. It’s one that I don’t think gets nearly enough attention from homeowners, my colleagues in the real estate industry and local government.

The loss of our tree canopy resulting from reckless tree removal by builders who are more concerned with maximizing profit on a single lot than promoting long-term growth of our communities is a major problem for Arlington. In 2017, I wrote an article highlighting the financial benefits to developers who actively work to keep the existing mature trees on a lot so if we can show both short-term and long-term benefits to builders and developers, what do we do?

Don’t Wait On Local Government

For starters, we can’t rely on government policy, but need to work within our communities at a Civic Association level to promote education and understanding. Not every homeowner is concerned about the tree canopy, but everybody is concerned about the long-term value of their home, so we need to educate everybody that the two are not mutually exclusive.

We are never going to stop the replacement of old homes with new ones, but we can support builders who take steps towards tree preservation and discourage residents from working with builders who have no regard for our neighborhoods.

Over the past couple of years, I’ve worked with some fantastic Civic Associations (residents of Williamsburg should be proud of their community leaders!) and the Arlingtonians For A Clean Environment to brainstorm ways to protect our tree canopy and I encourage anybody who has an interest to get involved.

An Education For Homeowners and Builders

I will continue this discussion through my column on ARLnow until we see progress. I hope that readers with an interest in getting involved can share ideas and connect via the comments section.

To kick things off, I want to introduce Heath Baumann, an ISA Certified Arborist with Bartlett Tree Experts, to provide education for homeowners and builders on tree preservation, tree replacement and tree care. Take it away Heath…

Preface

One of the most overlooked assets on a property is often the trees.

Trees not only improve quality of life with shade and beauty, mature trees can affect property value. As Northern Virginia continues to infill and urbanize, trees will face greater amounts of environmental stresses. Larger homes, less permeable surface area, soil compaction and heat island effects can stress both new and mature trees in your landscape.

Your home is comprised of multiple systems such as HVAC, plumbing and electrical. It helps to think of trees in the same manner. Routine maintenance performed by a licensed professional is affordable and extends the life of your trees.

Tree Preservation During Construction

Constructions projects can severely affect the health of trees. Physical stability, water and nutrient collection are vital functions of the root system. Here are some Do’s and Don’ts to preserving trees during construction projects:

Do’s

Develop a Tree Preservation Plan. Contractors and Consulting Arborists can develop this during the planning phase of your project.

Avoid intrusion into the critical root zone. Create a physical barrier with construction fencing to reduce soil compaction and physical damage to the tree by heavy equipment.

Have a licensed tree care provider perform any required root pruning.

Develop a tree care plan for affected trees. Certified Arborists can help the tree compensate for root loss and stress from construction activities.

Don’ts

Do not use heavy equipment to cut roots. Heavy equipment will cause extensive damage and compact the soil.

Do not allow construction materials, debris or chemicals to be stored around trees. Tree preservation zones are enticing areas for temporary storage. Soil compaction, chemical runoff and physical damage are all possible.

Do not use construction tools to perform pruning. Arborists’ tools are designed to make proper cuts reducing the impact on trees.

Replacing or Planting New Trees After Construction

Planting a tree is a wonderful feeling. A relatively simple activity can turn into a lifetime of enjoyment and an investment for future generations. The best part about planting trees is that nearly everyone is capable of doing it. It generally only requires a few tools that are available at your local hardware store or garden center. A few basic guidelines will help improve our success when replacing removed trees or adding to your landscape.

Do’s

Purchase your trees from a respected nursery or garden center. These businesses offer warranties, have higher quality nursery stock and have knowledgeable staff that can help you make the right selection.

Select the right tree for the location. Height, spread, shade tolerance and growth rate are all things to consider. A full sun tree will not thrive in an already shady landscape and vice versa.

Have your soil tested. The soil’s pH affects the nutrient availability for a tree. The Virginia Tech extension service and certified tree care companies can perform soil tests for a nominal fee. Use this information to select the tree or to build a soil care program with your tree care company.

Dig the correct hole. The hole for your tree should be 3 times as wide as the root ball. If possible, rototill an area 5 times the root ball to help root production. The bottom of the hole should remain intact.

Have your trees structurally pruned. Some tree species have growth tendencies that can lead to structural failure or root issues. An ISA Certified Arborist can show you how a few well-place structural pruning cuts can help your tree develop its ideal form.

Don’ts

Do not plant trees too deep. This is the most common mistake I see on landscapes. Ideally, the transition zone between the trunk and the roots should be slightly above soil grade.

Do not mound mulch. Mulch mounds, along with deep planting, can cause the roots to encircle the trunk of the tree forming a tourniquet that strangles the tree.

Do not leave the tree in the container. If the tree is in plastic container, remove the tree and loosen the soil and roots before planting. If the tree is in a wire encased burlap bundle, cut away the wire basket and remove the burlap from the sides of the root ball after placing it in the hole.

Do not overwater your tree. Infrequent, slow saturations with a soaker hose will help good root development. Frequent shallow watering will develop shallow, unstable roots. Constant soil saturation will lead to root diseases. If the soil at finger depth (4 inches) is dry, it is time to water.

Tree Care Basics

The majority of my clients are established homeowners who are concerned about the health of their trees. Sometimes it is a large, prominent oak or a bright, flowering ornamental tree. Here a few simple Do’s and Don’ts that home owners can follow to help their trees:

Do’s

Keep a mulch ring around the tree. This aides in temperature and moisture regulation while adding organic matter to the soil.

When watering use a soaker hose for infrequent, heavy saturations. This will ensure adequate soil moisture and help in root development.

Routinely look at your trees. The earlier an issue is caught, the better the odds of helping the tree.

Consult a professional. Certified arborists can work with you to develop a tree care plan based on your needs and budget.

Don’ts

Do not allow mulch to mound up at the base of the tree. Mulch can hold moisture against the trunk that can cause decay, increase stress and invite pests.

Avoid heavy application of lime or other lawn products. Lime and other lawn produces can affect the soil, making it unsuitable for trees.

Do not park or drive your vehicle over the root zone. This can lead to soil compaction.

Avoid damaging the tree with mowers and string trimmers.

Avoid employing a non-certified person or company to perform tree care. Improper pruning can lead to tree mortality and expose you to risks.

Even in ideal conditions, pests and diseases can attack trees. Fortunately, treatments exist for many of the common maladies in our area. If you are concerned about a tree, always contact an ISA Certified Arborist for a consultation.

Heath Baumann is an ISA Certified Arborist with Bartlett Tree Experts. If you wish to schedule a consultation with a Bartlett Arborist Representative, please call (703)550-6900.

Question: My property taxes didn’t change much this year, but the County announced that residential home prices increased 3.9%. Are the County’s tax assessments a good way of determining the market value of my home?

Answer: Tax assessments are not a good way of establishing the market value of your home. In fact, if Arlington homeowners used their tax assessment to determine their asking price, on average they’d be undervaluing their home by 10%!

Also, just because the County saw appreciation of 3-4% this year doesn’t mean that will be applied to all homes. Tax assessments are adjusted on a much more localized level based on neighborhood, number of bedrooms, square footage and other factors specific to your home. I would also advise that just because your tax assessment did not increase, doesn’t mean the market value of your home did not increase (and vice versa).

Market Values Higher Than Assessed Values

The following table compares the average sold price (market value) with the average 2017 tax assessment for all homes sold in 2017. I cleaned up the data a bit by removing Co-op sales (River Place), Ballston’s Senior Living Community, new construction (new tax assessments may take a year to catch-up) and a handful of sales that didn’t have a tax assessment available.

Notable Findings:

The average Arlington home has a market value 10% higher than its tax assessment

Only 14% of homes sold in 2017 sold for less than their 2017 tax assessment

The County struggles the most assessing the value of detached homes in Arlington, likely because of how difficult it is to assess land value with due to the proliferation of tear-downs being bought for land only

The most under-assessed zip codes were 22213, 22205 and 22204 with homes selling for 12% or more above the assessed value

The most accurately assessed zip code was 22201, with assessments coming in within 7.4% of the average market prices

Appealing Your Assessment

For the 2017 tax year, Arlingtonians will pay .996% of their assessed value in real estate taxes, up from .991% in 2016. Every year you have an opportunity to appeal your assessment and yes, it has worked, but the burden of proof is on the homeowner, not the County. Arlington provides an informative website on the appeal process.

Quick hits on the appeal process:

You should have received your 2017 tax assessment in the mail some time this month

Your first appeal with the Dept of Real Estate Assessments must be filed by March 1, 2018

Step 1: Call (703)228-3920 for information on how your assessment was determined

Step 3: An assessor will visit your home and you can provide relevant info to make your case

Step 4: If you’re not satisfied with the decision or have not received written notice by April 1, file your second appeal with the Board of Equalization online here (Second Level) by April 15

Step 5: If you’re not satisfied with the decision, your final option for appeal is with the Circuit Court, which will likely require you to hire an attorney

If you’re considering appealing your tax assessment, feel free to reach out to me to discuss building a case. I have access to micro and macro market data that can help you determine if your property is over-assessed and can help you create a clear report supporting your appeal.

Question: I’m planning to do some remodeling this year and wondering what sort of colors and design trends you’re expecting in 2018.

Answer: If you’ve been inside a new home or professional flip the last few years, the preference towards white and grey is clear in today’s market. When using neutral colors like this, there’s a fine line between a clean, modern look and being too sterile so I was excited that in 2017 market leaders like Houzz and Sherwin Williams started pushing for warmer tones to offset the cool greys that have become so prevalent.

If you’re remodeling with plans to sell in a few years, you’ll want to put more weight into current buyer trends. So visit some open houses for new construction homes to see what finishes builders are using and balance these with your personal preferences.

If you don’t plan to sell in the near or mid term, focus your decisions on personal preferences and don’t be afraid to go against the grain of the consumer market. There’s a good chance design trends will change anyway by the time you’re ready to sell so don’t compromise your style just because it’s not currently in demand with buyers.

Let’s take a look at what the experts are projecting for design and color trends in 2018:

Color

My favorite primary wall paint colors are this light grey or this taupe (each pictured below) from Sherwin Williams. Depending on the color of your floors, cabinets and counters, I think they offer a clean and calming effect that lends nicely to more aggressive accent colors.

Every year paint companies introduce their “color of the year” recommendations and 2018 is definitely a year for the bold. I was not a fan of Pantone’s 2017 selection of Greenery but love their 2018 choice, Ultra Violet (pictured below).

In 2017, Sherwin Williams kept it conservative with Poised Taupe, which I liked a lot and was happy to introduce to clients, but they did a 180 this year and made Oceanside(pictured below) their 2018 color. It makes sense for your beach house, but I don’t see it working well in the DC Metro.

Design Trends

Every year Houzz publishes their design trends and it’s always an interesting read. I pulled out some highlights from their 2018 Design Trends below:

Matte Black Finishes: We’ve seen the matte finish trend pick-up in appliances over the last year and it’s now carrying over to faucets, lighting and other smaller fixtures. I like the matte finish, especially on large appliances, because you eliminate the fingerprint smudging you get with stainless steel.

More Color In Kitchens: You may have heard white kitchens are out, but fear not recent home buyers, white kitchens are still the favorite, the growth is just slowing a bit from the surge we’ve experienced over the last few years. Try to accent your white kitchens with some warmer tones or take a shot at using one of the colors of the year noted above.

Concrete Accents: I’ve always enjoyed this look and am curious to see whether it catches on in our market. I’ve yet to see it used beyond an accent piece (e.g. coffee table) around here.

Bold-Colored Sofas: Just be careful because you could be one plastic wrap away from recreating Grandma’s house.

Defining Kitchens In Open Floor Plans: We’ve seen such an extreme trend towards tearing down all barriers between the kitchen and living spaces that South Park did an episode on it last year! I wouldn’t be surprised to see some movement back towards a more defined kitchen space with things like casual seating or storage being used to delineate spaces.

Dedicated Broom Closet: Nothing beats functional design! Just like putting a sliding spice rack into a narrow space, the idea is to take a few inches next to the refrigerator or pantry to install a tall, narrow sliding closet where you can hang a broom or mop to keep it out of your coat closet or pantry.

Are there any design trends you wish would return to popularity? Which current trends or colors would you like done away with?

Question: What were the real estate related changes in the new tax plan and how will those changes impact our local real estate market?

Answer: Spending an hour every week working on my taxes in QuickBooks doesn’t qualify me as a tax expert, so before I provide my take, I’d like to introduce local tax expert Molly Sobhani, CPA of Klausner & Company, located in Rosslyn, to break-down the key changes in the new tax plan that will effect how buyers and homeowners make real estate decisions. Following Molly’s explanation, I will provide my personal thoughts and stats, which stand in contrast to most of the opinions I’ve read.

If you would like to follow-up with Molly about the tax bill or any other tax questions, she can be reached directly at msobhani@klausner-cpa.com or (571) 620-0159. Take it away Molly…

After weeks of confusing, convoluted and contradicting proposals introduced by the House and Senate, the Tax Cuts & Jobs Act (TCJA) was signed into law on December 22 by President Donald J. Trump. As the dust continues to settle on TCJA, taxpayers across the country are wading through the tax reform bill and the impact of those changes.

With increases to the standard deduction, changes to the deductibility of mortgage interest and limits on property tax deductions, current homeowners and potential homebuyers have a lot to think about. The housing market will undoubtedly be impacted but how – exactly – is still a big question mark.

Summary of Major Tax Law Changes Impacting Residential Home Ownership

Interest will only be deductible on mortgage debts used to acquire your principal residence or a second home of up to $750,000 (or $375,000 for a married couples filing separately). The phase-out of deductible interest begins after the loan balance exceeds $750,000. This new debt limit applies to all loans incurred after December 15, 2017.

Interest on home equity debt (also known as Home Equity Lines of Credit or HELOCs) will no longer be deductible. This is true regardless of when the home equity debt was incurred.

State and local taxes (also known as SALT deductions) will be limited to $10,000 per year. This category of deductions also includes property taxes paid on homes.

The Standard Deduction has increased substantially from $12,700 for joint filers ($6,350 for single filers) in 2017 to $24,000 for joint filers ($12,000 for single filers) in 2018.

One provision that did not change is related to the capital gain exclusion of up to $500,000 for joint filers ($250,000 for single filers) on the sale of a primary residence. You still must use the home as your primary residence for at least two of the last five years in order to be eligible for the full exclusion.

So why do these new tax provisions make homeownership a trickier decision? The incentives for being a homeowner have now been substantially diminished by the new laws for many taxpayers.

A Hypothetical Scenario

A married couple earns $150,000/year in wages and is looking to buy a home in Arlington, VA. Their total state income taxes are $8,625 (5.75% of their $150,000 wages.) They have no other deductions to itemize in 2017 so they will take the $12,700 standard deduction.

In January 2018, they buy a condo for $425,000. They put down 20% and borrow $340,000 at 4%. They are under the $750,000 mortgage debt cap so they are eligible to deduct all of the interest they pay on their loan each year. In the first year, their total interest expense totals $13,491. Their property taxes are $4,233 based on Arlington’s 2017 rates for a $425,000 assessment. Our married couple has a brand new home and all these brand new deductions, right?

But wait! After we add the new property tax deduction of $4,233 to the $8,625 they already pay in state income taxes, they are over the $10,000 limit for SALT deductions. In this example, $2,858 of their property taxes are not deductible.

Fine. Let’s look at their total deductions then: they have the maximum $10,000 SALT deductions and $13,491 of mortgage interest, totaling $23,491. Under the old tax laws, they would itemize their deductions and see a reduction in their Federal and state taxes for these additional expenses.

But we’re not working under the old laws anymore, are we? Under TCJA, even after spending all this money on buying a new home, paying the interest on their mortgage and paying their property taxes, they are actually still better off taking the standard deduction of $24,000.

Why Bother?

As you can see from the example above, by increasing the standard deduction to $24,000 for a married couple filing jointly, many taxpayers who otherwise would have itemized may now benefit more from the standard deduction. This essentially takes away the tax benefit of owning a house for some people. And the question that many potential homebuyers may consider is: “Why bother?” More and more, they may delay the decision to buy in favor of renting.

Other Potential Effects on Housing Markets

Home values may be impacted, too, by the change in tax laws. If mortgage interest is limited to $750,000, houses that are listed at prices over $937,500 (assuming a buyer puts 20% down) may not be as appealing to new buyers as lower-priced homes.

Another consideration is how the disparity in state income and state property tax rates may drive homebuyers into lower tax rate states. In high tax states, there could be multiple scenarios in which taxpayers lose 100% of the tax benefit of paying property taxes.

Conclusion

Of course, there are other (wonderful) reasons to buy a home and other (wonderful) reasons to buy a home in certain neighborhoods. The upsides generated from the Tax Cuts & Jobs Act, though, are severely lacking.

Eli’s Closing Stats and Thoughts

According to The Washington Post, Moodys Analytics predicts that home values in Arlington will drop 2.3% as a result of the new tax bill, with drops of 2% in DC, 2.5% in Montgomery County, 2.6% in Loudon County and 4% nationally. Of course, this analysis is limited to the impact of the tax bill and doesn’t take any other growth factors into consideration. In other words, if Arlington continues its growth from 2017 (3.1%), we wouldn’t see actual losses, but stunted growth.

The change in SALT deductions and increase in the Standard Deduction will reduce the benefit of homeownership for many Arlington residents, but let’s take a look at how many homeowners are likely to be impacted by the reduction of the mortgage interest deduction limit to $750,000. Of the 3,100+ homes sold in Arlington in 2017, just over 400 were bought with loans exceeding $750,000. Approximately 30% of detached homes in Arlington (350 of 1,150 sales) had a loan exceeding the new limit. Keep in mind, however, that homeowners with loans over $750,000 will still be able to deduct interest on the first $750,000.

I Don’t Believe The Market Will Suffer

While these stats and Moodys’ analysis are great, they fail to capture how homebuyers actually make decisions in the real world. The majority of buyers decide to purchase a home because of a major life event (marriage, kids, job change, etc) and once they’ve decided to purchase a home, their budget is based on how much they have saved for a down payment and how much they can afford each month in housing costs.

Their monthly budget is primarily based on income and the sum of mortgage payments, property taxes, any HOA fees, insurance and maintenance. SALT and mortgage interest deductions don’t factor into any of the core considerations for most homebuyers.

Let’s Be Realistic

Let’s be honest, for most people, taxes are a once-a-year afterthought and tax planning is mostly crossing their fingers, hoping for a few dollars back. For those who do pay close attention to their tax exposure and who stand to lose out on the benefits of the mortgage interest and SALT deductions, I question how much it actually matters.

Previously, the mortgage interest was capped at $1M and there were just 163 (5%) homes purchased in 2017 with a loan of $1M or more who will be “fully” effected by the change to a $750,000 cap. In the first year, the interest paid on that difference of $250,000 is about $10,000 (drops each year), so for somebody with an effective tax rate of 30%, that’s a $3,000 change to their bottom line from last year.

Adding the change in SALT deduction increases that for many people and $3,000+ is nothing to sneeze at, but we’re talking about the wealthiest homebuyers with incomes exceeding $250,000/year. I’d bet that for those who are conscious of the net effect on their bottom line, they’re more likely to find ways to save this money somewhere else than their home purchase.

Plus, the tax plan provides substantial benefits to wealthy Americans and may very well have a net positive effect on their bottom line anyway. Also, does anybody really think that somebody negotiating on a $1.5M+ home they plan to live in for 15+ years will pay $5,000 less because that’s the calculated net impact from mortgage interest and SALT on their 2019 taxes under the new tax bill? No way.

Let’s be realistic about the psychology of home buying and what determines buying power because that’s what impacts home prices, not expensive studies funded by special interest groups (yes, I’m kind of calling out the National Association of REALTORS for fear mongering).

Answer: In July I wrote that the Arlington market was picking up momentum and after two years of light growth in Arlington, we saw our first year of growth over 2% since 2014 (3.1%). Over 3,100 homes were sold in 2017 compared to approximately 2,900 in 2016 and total sales volume was nearly $2.1B compared to last year’s total of just under $1.9B.

In addition to solid price growth, other momentum indicators improved (if you’re a homeowner/seller) with homes selling nearly one week faster and for ½ percent closer to the original asking price than last year. Price growth and demand were driven almost entirely by South Arlington with 22202, 22204 and 22206 seeing some of the greatest improvement.

Top Sales

Once again, the most expensive sale in Arlington was a Rosslyn condo at Waterview with 3,800+ sq. ft. and unobstructed views of the Potomac. It sold for $3,258,000 and took just over a year to sell.

Price Growth: The average price of homes in Arlington has increased every year since 2010, but was slow the last two years. The 22201 and 22203 zip codes continued a steady decline, while 22205 surged forward with an incredible 6.9% YoY increase. Overall, Arlington continues to deliver as promised to most homeowners and investors… steady and stable growth.

Demand Growth: Outside of price growth, my two favorite indicators of demand are days on market (time from listing to ratified contract) and the ratio of sold price to original asking price (100% = buyer paid full ask). Both indicators saw their biggest improvement since 2013 with homes selling faster and for closer to their asking price in seven of nine zip codes. While changes weren’t extreme, they’re enough to say the Arlington market has officially picked up steam heading into 2018.

New Construction: 2017 was big year for new construction. We saw the release of two large condo projects – Trafalgar Flats and Key & Nash – as well as strong sales for the final phase of the luxury condos at Gaslight Square in Rosslyn. 2017 also brought the start and close-out of the highly successful Carver Place townhouse project off Columbia Pike by Craftmark, as well as the introduction of a luxury townhouse project, 1100 Block, a few blocks north of the Ballston metro.

Single family new home construction continues to impress with 130 new homes sold in 2017 for an average sale price of a whopping $1,540,000. Note that the below statistics do not include all sales of new homes, just those entered into MRIS (system of record), which is likely about 80% of total new single-family home sales.

Looking Ahead To 2018+: Arlington residential real estate growth will continue to hinge on our office vacancy rates. With Nestle committing to Rosslyn in 2017 and arriving in 2018, the door is open to attracting big business not directly associated with the Federal Government. There’s no doubt that their decision will generate interest from other companies who otherwise would not have considered Arlington. If we make it to the second round of Amazon’s HQ2, we should have an exciting decade ahead.

Beyond vacancy rates, growth will depend on addressing crowded schools, balancing infrastructure investment across the entire county, business improvement along Columbia Pike and Lee Highway and ensuring that the natural beauty of our neighborhoods (trees and green space) isn’t destroyed by irresponsible development. With regard to the impact the new tax plan will have, expect a full column on this in the coming weeks.

I’ll close with a recent quote by Paul T. McDermott, President and CEO of Washington REIT, who recently sold their position in a major DC building to move assets into Arlington.

“We are strategically allocating capital out of 2445 M Street and into Arlington Tower to improve our long-term growth prospects in a resurging Rosslyn…Our research indicates that Rosslyn is at an inflection point with rising rents and declining vacancy as it transitions from a 9 to 5 Federal Government and contractor hub into a 24-hour urban destination with the demographics, amenities and infrastructure to attract top-tier corporations.”

If you’re considering buying, selling, or investing within the Arlington market in 2018, I’d be happy to schedule some time to meet. You can reach me any time by email at Eli@EliResidential.com or phone at (703) 539-2529.

I hope everybody had a great Christmas holiday and is enjoying some time off with family and friends this week! Instead of answering a specific question today, I’d like to offer something of a PSA to anybody buying a home right now or planning to in the near future.

There is a lot of wire fraud going on right now brought about by scammers who request wires using email addresses that look like they come from your agent, title company or lender. They hack the email servers of one of the parties to the transaction, identify where a buyer is in the settlement process, and send a technically accurate email with wiring instructions for an Earnest Money Deposit or down payment.

Oftentimes they use a Gmail address, but mask the name so that it says the name of somebody the home buyer recognizes, but in more advanced scams, they use a domain that closely resembles a real one. For example, they may use Eli@ElliResidential.com (two “L” in Eli) instead of Eli@EliResidential.com. It seems like most of the people carrying out the scams are familiar with the real estate settlement process because they’re able to communicate with a level of expertise that doesn’t raise any red flags.

Once you wire funds, the money is gone, so if you send a wire to a fraudulent account there’s no getting it back. Your first choice should be to use physical checks for deposits and final payments, but if you have to send a wire, but sure to contact your agent to make sure that the timing of the request is correct and call the receiving party at a known number (e.g. from their website) to confirm the accuracy of the wiring instructions.

Please share this notice with anybody you know in the home buying process. I’ve heard stories of too many people losing large amounts of money this year from these scams and hope this post helps avoid further loss. Until next year friends!

Question: Are there certain considerations to be aware of when re-listing your home in the spring/summer market if you listed and then pulled it during the fall/winter market? Are there things that you would need to fix up in a slow winter market that you could let slide in a hotter market?

Answer: You’ve been on the market for months, had a few interested buyers, but nothing has stuck. Now you’re in the midst of the holidays during the coldest and darkest days of the year so you’re asking yourself what every seller is asking… should you pull your listing and wait for the market to heat back up in the spring?

There are three scenarios that I’ll consider advising sellers to take their home off the market during the winter:

You are living in the home, are under no pressure to sell, have been on the market for more than 60 days without an acceptable offer and have exhausted conversations with any buyers who have shown interest.

You have received feedback from agents and potential buyers that the home needs work and you will take time over the winter to make the necessary improvements, providing that the cost of those improvements will net you better terms than an immediate price reduction and avoiding additional carry cost.

A key selling point of your home is landscaping and/or a view that is difficult to recognize during the winter.

Pros & Cons Of Re-Listing

Pro: More Buyers… The number of homes that go under contract drops substantially from November-January and picks up quickly in February. On average, the number of new purchase contracts more than doubles by March compared to December and January.

Pro: Faster Sales… The increase is buyer activity (demand) results in homes selling a lot faster in the spring/summer

Con: Not Necessarily Higher Prices… The increased buyer activity impacts days on market a lot more than it does pricing. The amount somebody is willing to pay or qualified to pay for a home often does not change based on the season, rather larger economic factors.

Con: If you decide to re-list in the spring, you are probably planning to do so at a higher price. Be careful with this decision because agents and buyers have easy access to previous asking prices and if you have not made any substantial capital investments to your home to justify the increase, most buyers will base their negotiations on your previous asking price, not the new/higher one.

Pro: If you’re off-market for three months or more, your days on market count officially resets to zero when you re-list. This is a system rule for MRIS/BRIGHT (the database of record for agents), although most buyers use sites that show the full listing history and can easily see that something was withdrawn and re-listed.

The Spring Isn’t Easier

Don’t ease up on the marketing of your home in the spring just because there are more active buyers than the winter. You will be competing against 2-3 times more homes for sale so you could make a case that you need to do even more to stand out in the spring, not less. However, if you’re on a budget, you may want to allocate your repair, improvement and staging funds differently based on the season such as the warmth of the family room in the winter vs outdoor dining in the spring.

Question: Is it true that two-bedroom condos are a better investment than one-bedroom condos?

Answer: If you’re asking this question strictly as an investor, the answer is purely based on the numbers. If you’re buying for yourself, you’ll want to consider appreciation as well as what makes the most sense for your lifestyle. For example, do not spend an extra $150,000 because a two-bedroom will appreciate faster, if you’ll end up using the second room for storage and an occasional guest.

Two-Bedroom Condos Appreciate More than One-Bedrooms Condos

Below is a graph showing appreciation of one and two bedroom condos in Arlington since 2010. To maintain consistency, the data set uses condos built from 2000-2008 limited to one bedroom units with 600-800 sq. ft. and two-bedroom units with 900-1,400 sq. ft.

The average one-bedroom sold for $364,000 in 2010 and is selling for $409,000 in 2017 while the average two-bedroom sold for $529,000 in 2010 and is selling for $638,000 today. If you bought the average one-bedroom in January 2010 with 20% down, you’d have approximately $172,000 in equity today. If you bought the average two-bedroom in January 2010 with 20% down, you’d have approximately $294,000 in equity today by putting an extra ~$33,000 down in 2010.

If You’re An Investor

If you’re an investor, you’re looking at rental income, in addition to appreciation. As I wrote this spring, rental rates have been pretty flat in Arlington, especially along the Rosslyn-Ballston corridor, due to a lot of new rental buildings being built the last 5-10 years.

Based on the average 2010 purchase prices, rental income and a 25% down payment (most common % down for an investor), the average investor along the Rosslyn-Ballston corridor has no cash flow from their investment. The table below does not include maintenance or property management fees and assumes average condo fees, taxes and insurance.

So Why Invest?

Considering that the above monthly cash flow summary does not include maintenance costs, property management fees or vacancy periods where is the value in owning an investment property?

Equity Build-Up: For a one-bedroom, your tenants would have contributed an average of $460/mon over the last 8 years ($44,000) to your equity balance and for a two-bedroom, your tenants contributed an average of $680/mon over the last 8 years ($65,000)

Tax Benefits: Another major benefit of investing are the tax benefits. Being able to deduct expenses like condo fees, tax payments and repairs. As well as depreciate the value of the condo and provide a huge annual financial benefit to off-set the weak monthly cash flow. A one-bedroom investor may be able to deduct about $20,000 per year and a two-bedroom investor about $30,000. Of course, you’ll want to discuss any deductions with your tax professional first.

If you’ve invested in property in other areas of the country, you may be shocked by how little monthly cash flow a condo along the Rosslyn-Ballston corridor produces. A major reason for the lower ROI is the lower risk that comes with investing in Arlington condos. Your downside risk during an economic dip is much lower and the rental market is consistently strong with a large pool of well-qualified renters. It follows the basic economic tenets of risk and return.

If you’re considering buying an investment property, feel free to send me an email at Eli@EliResidential.com to set-up a meeting to go through your investment goals and options.

Question: Can you provide insight into how much a tear-down home costs in Arlington and how lot size effects sale price of a single-family home?

Answer: Breaking News… land is very hard to come by in Arlington. Only 11 homes sold in the last ten years had one or more acres, and it’s going to cost you over $1M to buy one. The average lot size of a single-family home in Arlington is about 8,400 sq. ft. or .19 acres with about 70% of homes on 6,000-10,000 sq. ft. lots.

Here’s a look at the impact of lot size on sold prices of single family homes over the last three years broken out by zip code:

Cost Of Arlington Homes By Lot Size

The data above takes homes of all sizes and condition into account so it doesn’t do a great job of isolating the actual market price of the land or how much people pay for tear-down lots in Arlington.

To summarize that data, I pulled out the cheapest 15% of sales in each zip code over the last three years. I felt that the cheapest 15% of sales in each zip code were probably good bets for homes being bought for the land/location with the intention of tear-down or major renovations. Note: 22209 didn’t have enough sales to include in this table.

Cost Of Land In Arlington

If you’re thinking of buying a tear-down and building new, a good way to estimate how much your home will cost is to add the following:

Land acquisition (see above table for estimated land cost by zip code)

$75,000-$100,000 for demolition, preparing the lot for construction, and permits

$400,000-$800,000 on construction

Carrying costs of the loan and taxes during construction of the new home

Earlier this year I wrote about the variance in County tax assessments and market data. How do the market prices for land compare to the County’s tax assessments, which are broken out by land assessments and improvement assessments (assessed value of the home)? Let’s take a look at how the County has assessed land values on homes sold over the last three years and compare that to the market assessment of land values above.

The County Values Land Less Than The Market

Based on this data, the County values land at about 72% of the market value for land on the open market.

Once you’ve had some time to digest the cost of land in Arlington, let me know if you’d like to meet to discuss the process of buying a tear-down lot and building your own home! Email me at Eli@EliResidential.com to schedule an appointment.

Question: Are there good loan options available if I don’t have 20% or more to put down?

Answer: There are an abundance of loan products on the market that cater to different professions, down payments and financial circumstances that you should be aware of. “Rate shopping” is easy and moderately effective, but “product shopping” can be much more valuable and something an informed Agent can assist you with. Here are some of my favorite loan programs and the lenders I work with who provide them:

The Doctor Loan Program is a residential mortgage loan specifically created for licensed medical professionals to make obtaining mortgage financing easier and more hassle-free. It recognizes the financial toll of medical school and strong, stable future income post-graduation. The rates on these loans are also fantastic.

Available financing terms include fixed and adjustable rate mortgages for purchases and rate/term & cash out refinances.

0% down up to $750,000 loan amount

5% down up to a $1M loan amount

10% down up to a $1.5M loan amount

No mortgage insurance required

Homeowners Buying And Selling: Second Trust/HELOC Program from First Home Mortgage: Jake Ryon (jryon@firsthome.com, (202) 448-0873)

This is a great program for current homeowners who will be buying and selling simultaneously. It allows you to use the future proceeds from your home sale to make a large down payment on your new home, before even putting your current home on the market.

They partner with local banks and credit unions to provide you with a second trust that allows you to put as little 5% down up to nearly a $1,000,000 loan amount. The second trust finances the remaining amount of your down payment (e.g. 15% if you put down 5%).

The HELOC/second trust payment is interest-only, can be paid off any time and can be used like a bridge loan to allow you to purchase a new home without a home-sale contingency and to sell your existing home unrestricted.

This program enables you to put as little as 3% to 5% down using conventional financing (not FHA) and eliminate the monthly mortgage insurance payment by making a one-time more affordable payment. This provides multiple benefits including a potential increase in buying power by reducing the Debt-to-Income ratio (lower monthly payment), allowing you to negotiate for the seller to make this payment by rolling it into closing costs, and ensuring that the entire payment is tax deductible (confirm with your tax advisor).

It’s not just the Doctors who can find low down payment options without mortgage insurance for high-value (jumbo) loans. Wells Fargo’s “Professionals” Program lets you put 10.01% down on loans from $424,100 up to $1,000,000 without any mortgage insurance and the rates are incredible. They have options for fixed and adjustable mortgages as well. A high credit score and strong income are key factors for qualifying. It’s referred to as the “Professionals” Program because it’s popular amongst high earning, non-medical professionals like lawyers and consultants.

Make The Right Choice

Choosing the right lender is a combination of selecting the program that’s right for you, getting the best market rates, and working with somebody who provides a high level of service. Earlier this year I wrote an article with additional tips for selecting and comparing lenders. If you have any questions about the programs I summarized above, other lending programs like construction and rehab loans, or would like an introduction to one of my preferred lenders please reach out to me at Eli@EliResidential.com.

Question: We are buying a vacation home this winter and wondering how the process and rules differ from our experiences buying our primary residence.

Answer: Buying a vacation home is a little like buying a primary home, but there are key differences you should be aware of. Lenders tend to set more stringent lending requirements and you must be clear about your plans for the property. With these considerations, potential buyers can plan for the financial obligations and time commitments common to the purchase of a second home.

What Counts as a Second Home?

Lenders treat primary residences, second homes or vacation homes and investment properties as unique types of property purchases. Typically, lenders are more likely to grant loans with more favorable terms to people purchasing homes as a primary residence, as the occupation of the home usually ensures a higher degree of timely repayment. Properties that will never be occupied by the owner have different lending and tax obligations. As such, to buy a second home or vacation home, lenders often require you to choose properties that are a set distance away from your primary residence. You must also indicate that you’ll occupy the property for a set amount of time each year.

Vacation Home or Investment Property

Given that a vacation home must be a notable distance from your primary residence, you should consider the type of arrangement that works best for you. Homes suffer from lack of attention, so you should be prepared to make regular visits for maintenance and repairs, or hire a local company to do so. Larger or more remote properties may demand more care, while a condominium in a developed area might require less. You may also choose to rent out the property in your absence to help pay for the mortgage. However, this may affect the classification of the property purchase, and have other tax implications.

Capital Gains Taxes

Selling a primary residence often qualifies the seller to exclude up to $500,000 of the capital gains from their tax liability for a married couple ($250,000 for a single person), but vacation homes are viewed differently. Typically, a homeowner must have lived in the home as a primary residence for at least two of the past five years to qualify for the maximum capital gains tax exclusion.

People who never occupied the home as a primary residence do not qualify for the exclusion and may be required to pay capital gains taxes. Buyers who eventually intend to occupy the vacation home as a primary residence should carefully consider when they plan to sell both properties. For example, a person who sells a primary residence and moves into a vacation home may be able to claim the vacation home as a primary residence, if they occupy it for a minimum amount of time. However, they cannot claim the capital gains tax exclusion more than twice in a two-year period.

Down Payment and Mortgage Interest Rates

People read about down payments as low as 3 percent to buy a home, but these programs are generally aimed at borrowers looking to purchase a primary residence. A vacation home represents a higher degree of risk, since the lender cannot count on the buyer’s full time occupancy to entice adherence to the loan.

As a result, you should plan to make a down payment of at least 20 percent of the second home’s sale price. You may need to pay more to satisfy lender requirements, particularly if your debt-to-income ratio is on the higher side. Due to the increased risks inherent to second properties, lenders may also set higher mortgage interest rates.

Mortgage Interest Deduction

The mortgage interest deduction can be an excellent way to offset some of the costs of purchasing a home and paying a mortgage, but there are limits on this deduction for owners of multiple properties. First, the total mortgages that owners can use in the mortgage interest deduction must be less than $1 million total–possibly somewhere around $500k if the laws change–if they are married filing jointly. Second, owners of more than two properties can only deduct the interest of one primary residence and one second home. Third, people who own a vacation home but rent it out periodically must occupy the home for at least 14 days a year, or 10 percent of the amount of the time the home was rented throughout the year, whichever is greater.

People who convert a vacation home into an investment property may also be able to deduct a portion of the mortgage interest they pay on the home, but the tax guidelines for investment properties are different than owner-occupied homes.

Buying a second home is an investment that turns out to be quite unique from buying a primary residence. Hopefully these tips will help you make a better decision. Most importantly, good luck finding your perfect vacation home!

Where Is It? Columbia Forest is a small neighborhood on the western border of Arlington bounded by Columbia Pike to the north, Four Mile Run to the east, S George Mason Dr to the south and the Arlington-Falls Church border to the west.

It is largely considered the most affordable neighborhood in Arlington with detached homes in good condition selling in the $400s and 1BR-2BR condos in good condition selling in the mid $100s. There are also pockets of townhouses and duplexes available. The neighborhood is served by Claremont and Barcroft Elementary Schools, Gunston and Kenmore Middle Schools and Wakefield High School, which is walking distance from every home in the neighborhood.

About The Interviewees: Arthur works for a local University and had previously lived in DC since 1997. Lyz works for Walter Reed in Bethesda and had lived in Annapolis and Gaithersburg. When they moved in 2015, it was the first time either had lived in Arlington and they chose a duplex in Columbia Forest for its affordability and convenience.

Since moving in they’ve added a free library in front of their home (pictured), added a prized garden that keeps their neighbors and friends stuffed full of veggies and painted the exterior of the house. Both Lyz and Arthur are highly active in the civic association and neighborhood programing.

What Do You Love About Columbia Forest? The affordability of it was key and we actually have yard space, which is hard to find at a good price in Arlington. It’s an eclectic neighborhood with a sense of “live-and-let-live” that is difficult to come by elsewhere in Arlington. There’s no overreaching HOA and neighbors are accepting of untraditional landscaping, exterior paint and the individuality of each other.

It’s also a very safe place to live — during a civic association meeting, one of the police representatives said that it’s one of the safest neighborhoods in Arlington. It’s also an inviting community for families and children because there’s not a lot of traffic and plenty of space for kids to play in yards and the street.

Does Columbia Forest Have Its Own Identity? There’s a lot of community here that gives us a sense of belonging to a true neighborhood. We were shocked at how active it is on Halloween for local families and because so many of our neighbors have lived here for decades, there’s a welcoming social scene that we’ve enjoyed becoming a part of. You can tell people here truly care about one another.

We’ve also teamed up with other “West Pike” neighborhoods like Barcroft and Arlington Mill for programing and hosted our fifth annual food truck event in October with over 300 people (Lyz is highly active in this event). Note: check out one of the best neighborhood websites I’ve seen at http://www.columbiaforest.org/.

What Are Some Of Your Favorite Places Nearby? We’re a couple of minutes from Shirlington Village so we do most of our grocery shopping at the Harris Teeter there and love eating at Copperwood Tavern (note: this is the second or third interview I’ve done that Copperwood Tavern has been named as a favorite). There’s an incredible authentic taco truck, Pa’ Tacos El Papi, around the corner off Jefferson as well.

We spend a lot of time outdoors, so when we’re not gardening or working on a project around the house, we head to the WO&D and Four Mile Run trails. We also spend a lot of time at Barcroft Park, the western part might be one of the most underrated/underutilized spaces in Arlington. We’d love to see our local park, Bailey’s Branch Park, get some love from the County.

What Do You Envision For The Future Of Columbia Forest? It really depends where western Columbia Pike fits into the Arlington Economic Development plans. If we can find ways to encourage non-chain businesses to consider the area for its lower rent, easy access and ample parking we can create a really unique pocket of retail and residential in Arlington.

There is so much energy behind building community from the residents, that new businesses would find an impressive support system at their doorstep. If we can do this, with the support of Arlington leadership, Columbia Forest will thrive.

Thank you so much for your interview Arthur and Lyz! I’m sure this will help people considering a move into or within Arlington who would love to join a community like Columbia Forest.

Question: Do you have any details on the new condo building on Columbia Pike?

Answer: The development of Columbia Pike continues westward with the introduction of a very affordable, brand new condo building by Pillars Development Group. The success of recent residential projects, Columbia Place (condos and some townhouses) and Carver Place (townhouses), along the eastern half of Columbia Pike, signal that this will be a successful project for Pillars, who has developed other local condos like The Berkley in Ballston, The Henry in Alexandria and The Paramount in Reston.

What I’m Tracking

The developers decided to make 25% of the units Jr 1BRs, with just under 500 sq. ft., which hasn’t been a very common product in newer construction so I’m looking forward to seeing how these sell. I think it will be a great secondary residence for buyers who live 90+ minutes away and work nearby, as well as the modern value-based buyer looking for affordability and less space.

Unlike most small studio spaces, they have a separate room to sleep (functional bedroom that doesn’t meet legal bedroom requirements) which makes them much more desirable than studios with one large living/sleeping space. The asking price of these units will range from $250k-$300k with monthly condo fees just under $200.

For reference, only 32 condos have sold in Arlington over the last two years for less than $300,000 and monthly fees under $250. The average construction date of those units was 1964, with none being built in the last ten years.

Affordable

Affordability and value are the selling points for Trafalgar Flats (ease of pronouncing the name is not) with 700+ sq. ft. 1BR units selling from the mid to upper $300s and 2BR/2BA units starting in the mid 400s.

The monthly condo fees are also a selling point, coming in about 10-15% lower than the average fee/sq. ft. of other Arlington condos, while still including a gym, lobby, outdoor terrace and bike storage. Above average condo fees were a problem for a lot of potential buyers of Rosslyn’s recent Key & Nash project, which is about 50% sold and about three months from completion.

For reference purposes, there have been 308 2BR/2BA condos sold in Arlington over the last two years for less than $500k and fees under $450/mo., but only three were built in the last 10 years. Bottom line… it’s rare to find value like this in Arlington.

Investment-worthy

There aren’t too many places left inside and around the beltway where you can expect above-market appreciation, but Columbia Pike is one of them, especially the western half now that the eastern section has already seen substantial growth.

At the current pricing and being in the early stages of western Pike development, savvy buyers and investors should pay attention. The property sits just two blocks from the site of the under-development Columbia Pike Village Center, anchored by a Harris Teeter (replacing Food Star), slated to open in 2019. Expect strong ROI from all three options — Jr 1BR, 1BR and 2BR.

From the builder, “We chose to build in this location due to the community’s close proximity to DC and the Pentagon. Arlington County is committed to the revitalization of the Columbia Pike Corridor. We are proud to be amongst the first to offer the opportunity to purchase a new luxury condo in this changing, urban environment.”

Other Details

The building will have 78 total units with 25% Jr 1BR (under 500 sq. ft.), 25% 2BR/2BA (~1,000 sq. ft.), and 50% 1BR/1BA (over 700 sq. ft.) with prices ranging from mid $200s to mid $500s. Monthly fees will start at $192 for the smallest units and top out at $421 for the largest 2BRs. One of the best parts of buying pre-construction is being able to choose your finishes including cabinets, counters, flooring and tiling. All units come with one underground assigned garage parking space.

If you’d like to discuss Trafalgar Flats as a primary residence, secondary residence or investment please reach out to me at Eli@EliResidential.com or at (703) 539-2529.

Question: I’m the Treasurer at [redacted Condo Association] and we’re working on the 2018 budget. What’s a good way for us to save money in the budget without compromising the health and maintenance of the building?

Answer: As a former Condo Board Treasurer, I feel the pain that this time of year brings, so I’m happy to offer some advice that helped me finding savings while I oversaw the budget and has helped other Associations do the same… review your Master Insurance Policy. I know, it’s not the most exciting answer, but your insurance policy is likely a top three expense on your balance sheet every year and if you haven’t reviewed it lately, there’s a good chance you can cut the cost by 5% or more and probably improve your coverage at the same time.

I’m not an expert in insurance so, I asked Andrew Schlaffer, Vice President at USI Insurance Service’s Community Association Practice (www.USI.com) to provide some details on what Board’s should look for when they do a review of their Master Policy. If you’d like to discuss a review with Andrew directly, you can reach him at 703.205.8764 or Andrew.schlaffer@usi.com. Take it away Andrew…

Pillars Of Insurance Reviews

Condo insurance reviews require a holistic approach, so it’s important to break the cost into a few distinct categories: insurance premium, deductible expense and out-of-pocket costs. To effectively accomplish long-term savings, all three of these categories need to be considered and addressed with a qualified insurance professional.

Adjust Coverage Responsibly To Save On Premium

Premium is certainly a factor to consider during the insurance selection process; however, available insurance products differ significantly. Coverages and services should be very carefully analyzed and compared. While omitting various coverages will save premium dollars, it might also result in substantially increased costs to the Association for out-of-pocket expenses related to uncovered claims.

It is critical to work with a professional who understands local insurance needs and can adjust your insurance program in a way that maximizes premium savings while maintaining adequate insurance coverage. Some coverages may be required by statute and/or Association documents, so cutting required coverage exposes the board to unwanted risk.

Deductibles Based On Loss History

Associations with strong financials often choose to increase their property deductibles which can provide immediate savings of 2-5%. Deductibles range from $2,500 to $25,000+. When considering deductibles, it is important for the Association to review their loss history and the loss history of comparable buildings in an effort to obtain an accurate estimate for deductible expenses.

Rate Shopping

The most common strategy employed by Associations seeking lower insurance costs is to shop their carrier. An Association can accomplish this in several ways but generally their appointed broker can offer alternative carriers in an effort to obtain the most competitive rates possible. Make sure your broker has access to all of the competitive markets in order to maximize the likelihood of finding savings.

Secondly, and more importantly, if savings is found, your broker should verify that all required coverages are included to secure the Association’s long-term financial security and lender approval. Additional savings can be realized by a thorough coverage analysis to verify the Association is not being over-insured by paying for coverage it won’t use. We are in a relatively soft insurance market, so an Association can expect savings of 2-5% from a simple review, depending on the number of claims that have occurred during the previous policy period.

To insure cost savings and long-term health of your property, make sure your insurance broker specializes in Condominium or Homeowners Associations. To maximize your savings, the Association, insurance broker and insurance carrier need to work in harmony in an effort to identify and reduce threats to the financial health of the community.

Help Reducing Claims

One of the best ways to keep insurance costs down is to avoid claims altogether. Some examples of how insurance brokers can help reduce claims and the impact claims have on your future premium costs include coverage reviews/benchmarking, claims management services, site inspections, building upgrade recommendations, life safety planning, vendor contract reviews, discrimination/harassment training and hiring/firing best practices.

Thank You

Andrew, thank you very much for providing your insight. I know from experience how much of an impact an insurance review can have on a condo budget, but also how important the right coverage can be when there’s an unexpected claim. One thing Board’s often overlook when they’re solely focused on price is the quality and speed of service when a claim in filed.

For example, if a pipe bursts and floods the gym and lobby, a Board should be confident that the work orders will be executed quickly so the building can be back on its feet without delay or headache. Unfortunately, most Boards don’t think about this until they’re dealing with it, and it’s too late. I encourage any Board/Treasurer to reach out to Andrew to review their policy. He does fantastic work and USI is a leader in Condo/HOA insurance policies in Northern Virginia. His contact info is:

Question: What’s being built across the street from Turnberry Tower in Rosslyn?

Answer: We don’t see many new condo projects these days in Arlington, developers are going with apartments due to low interest rates and surging rents, so the new Key & Nash condo and townhome project in Rosslyn is a welcome addition to the neighborhood. Over the last five years, we’ve had an underwhelming number of condo deliveries.

Along the Rosslyn-Ballston corridor, the only new condo sales have been Arc 3409 in Virginia Square (converted from a hotel in 2014) and Gaslight Square in Rosslyn (luxury condos).

On Thursday evening, the Key & Nash team hosted an unveiling party on the 23rd floor of 1812 N. Moore (the Monday Properties/Goldman Sachs building that has sat empty the last few years) to release details of the project and start sales for a late-2017 delivery. Leading up to the project, I expected that NVHomes’ new Urban Division would look to successful nearby luxury projects like Gaslight Square, The Wooster, Rosslyn Key, and Rhodes Hill Square for their design and pricing with an emphasis on Gaslight Square considering its most recent success with Phase 3 (final build-out).

Instead of delivering a fully custom luxury product, NVHomes is sticking with their bread and butter formula of delivering a more moderate project that fits surprisingly well between Rosslyn’s mid-market options like The Atrium, The Belvedere, 1800 Wilson and its luxury options like Turnberry Tower, Waterview, and those mentioned above. It makes sense for NVHomes, avoids over-saturating the Rosslyn luxury market, and satisfies demand.

With just over sixty units including 1BR + den, 2BR, 2BR + den, and 3BR flats ranging from about 850sqft to just over 1,500 sq ft, plus five 3BR townhomes at nearly 2,000 sq ft there are a surprising number of options for buyers. Starting in the low $600s and clearing the $1M mark for some of the larger flats and townhomes, it’s an attractive $/sq ft for a new building just a block from the metro and likely to benefit from the massive redevelopment of downtown Rosslyn. For market-average condo fees, residents will get a high-end gym, 7-day/week concierge, roof deck, large common terrace w/ grills, and underground parking.

I’m looking forward to seeing how the larger 2BR + den/3BR flats do compared to the townhomes. I think the challenge for the townhomes will be the fact that the master bedroom is the entire top floor, with the 2nd and 3rd bedrooms on the 2nd floor (main level is kitchen and living space), making it a difficult layout for buyers with a young child (prefer to sleep on the same level) and a lot of steps for regular trips between living space and master bedroom. However, with only five townhomes being delivered, they’ll probably be the first to sell-out.

Personally, I think the best value purchases are the 1BR + den and smaller 2BR/2BA because they’ll make great rental properties with the dens/2nd bedrooms being on opposite sides of the apartment from the master bedroom (ideal for roommates). If you’re planning to live there for a while and can afford the premium, there are two 2BRs with 500 sq ft private terraces and a handful of 1BR + den and 2BRs in the back with larger Limited Common Element terraces (only accessible to your unit, but technically common space) that offer hard-to-find “useable” outdoor space.

While there wasn’t anybody camping out for the sales office to open, the line to sign-up for a sales meeting on Thursday night reached 50+ people at some points and there were probably a few hundred people at the event. The R-B corridor and Arlington market is hungry for new condos and this delivers at a price range that meets a lot of budgets and designed to accommodate a range of buyer types, so I expect sales to move fairly quickly, even though people won’t get to step foot into a unit until the end of the year.

Feel free to reach out to me at Eli@RealtyDCMetro.com if you have any specific questions about the floor plans, pricing, location, sales process, etc or if you’re considering a purchase in the building. I’d be happy to discuss details and my thoughts on the investment potential of purchasing in Rosslyn.

Question: I came across an article you wrote about how buyers and sellers can avoid the most common problems encountered in a real estate transaction and it made me wonder what some of the most common mistakes are that home owners make when selling that have the biggest impact on their bottom line.

Answer: The biggest mistake a home owner can make when selling their home is not calling me first… kidding (but not really). Below are a handful of the biggest mistakes I see home owners make when selling their home, that have the most impact on their net bottom line. This is not exclusive to homes sold without an agent either. Unfortunately, I see many of the same mistakes on For Sale By Owner (FSBO) homes as I do on listings owners are paying an agent to manage.

Over-Investing In Updates

Choosing the right combination of updates to invest in (or not) to prepare your home for sale has the biggest impact on your net bottom line of any decision you’ll make. I cannot stress the importance of getting this decision right early in the process.

You should only invest in updates that will result in an ROI of greater than 100% or it’s a waste of money and time. Of course you will be able to sell your home for more money if you redo the kitchen and master bathroom, but in most cases, you’ll only get a fraction of your money back, generating a huge net loss for you.

Similarly, don’t spend $10,000 replacing floors, but ignore painting and leave your old brass doorknobs. Selecting the right “package” of updates that will generate the highest ROI is specific to your sub-market, budget, priorities and time of year.

Working with an agent on these decisions who works with both sellers and buyers is critical because they have a strong understanding of how buyers interact with homes during showings and the impact certain updates have on their buying decisions.

Stop Using Amateur Photography

My photographers are some of the most valuable assets I have because the quality of photos can make the difference between drawing heavy traffic and being passed over… Traffic = offers and heavy traffic = multiple offers. Buyers and agents are combing through a lot of homes to decide what is worth seeing in person and the quality of your photos influences that decision more than anything else. Do not take pictures with your cell phone. Do not use an amateur photographer. Do not use a photographer without real estate experience.

Listing On The Wrong Day

It’s Sunday evening… you’ve taken pictures, selected your asking price and spent all weekend cleaning so you’re finally ready to put your beautiful home on the market, make yourself a drink and watch the offers roll in. STOP. There is one day of the week that you should put your home on the market to maximize exposure while minimizing days on market (and two acceptable alternatives), but Sunday evening is not one of them. Feel free to email me to find out which day you should list your property and why.

You raised three amazing children in your home and kept up with regular maintenance for 25 years, so who is this buyer and their inspector to tell you there are 35 items that need to be repaired? It’s hard not to take the results of a home inspection and the resulting buyer requests (read: demands) personally, but you’ll be much better off keeping your emotions out of this final negotiation. Reference my advice to sellers for home inspections here.

Remember that this is likely just as emotional of a transaction for the buyers and the goal is to reach a equitable agreement, not start a fight to defend the pride you have in your home.

There are a host of other mistakes I see including over-pricing, limited showing times and not including a floor plan but the above highlight the most common errors that have the biggest impact on a home owner’s net bottom line.

If you’re considering selling your home, even if you’re 12+ months out, don’t hesitate to reach out to me to discuss strategies that will maximize your sale. You can reach me any time by email at Eli@EliResidential.com or phone at (703) 539-2529.

Question: We are planning to buy a home in the next 12 months and wondering what the real estate market is like during the winter. We’ve heard it’s a bad time to sell, but does that mean we won’t be able to find anything we like?

Answer: I love working with buyers in the winter because we have more opportunity to negotiate (a nice reward for fumbling with keys in the dark when it’s 30 degrees) and the probability of finding a seller ready to negotiate increases substantially. In Northern Virginia, the winter market generally runs from late November through late February/early March (Thanksgiving to March Madness) and is defined by increased buyer leverage, less contract activity and fewer new listings. While many buyers can benefit from winter shopping, it’s not the right time for everybody.

Buy In The Winter If…

You’re a bargain hunter

What you like is priced just outside of your budget

There is a regular supply of homes you like

You can accept having a few offers rejected

Wait For The Spring If…

You have specific, hard-to-find criteria

You value the perfect home over a great deal

Your purchase is contingent on selling your current home (requires additional conversation)

That’s not to say you can’t negotiate a great deal in the spring or find a unique property in the winter, but if you’re playing the odds, the above is a good set of guidelines for deciding the best seasons to focus on a purchase.

I’ll let you review the trends in Northern Virginia for yourself:

Buyer Leverage Increases In The Winter

In the winter, buyers pay about 2% less, relative to original asking price, than they do in the spring. On a $500,000 purchase, that’s $10,000 in savings.

New Contracts To Purchase Drop By Half In The Winter

Buyers have more leverage in the winter because there are fewer of them actively searching the market.

It’s Harder To Find What You Want

The probability of the home you want hitting the market in the winter drops substantially, making it difficult on selective buyers. This is also why fewer homes go under contract in the winter.

If you’re on the fence about buying this winter or not sure if you have time to prepare yourself to make a purchase, send me an email at Eli@EliResidential.com or give me a call at (703) 539-2529 to discuss your options and put a strategy in place.

Today marks my 100th Ask Eli column, combining for nearly 60,000 words written about our local real estate market. How am I doing? What topics and statistics would you like to see more of?

One thing I’d like to do more of is use this space to help organize the community around ideas most residents care deeply about, but have little information on, like eliminating smoking from condos and saving/growing the tree canopy.

I appreciate everybody who has reached out with feedback, both positive and negative, and thoughtful questions that keep these columns relevant and organic. I also appreciate our active commenters who keep me on my toes and challenge me to back-up my opinions.

A special thank you to Scott Brodbeck and his team for providing us Arlingtonians a valuable source of hyper-local news coverage and a platform to discuss our opinions. Did you know that ARLnow is run from a small office with just a few people, not a newsrooms of fact-checkers, reporters, and writers? I was shocked by how much they accomplish with so few people. Kudos to Scott and his dedicated team.

Thank you for your support and I look forward to providing you with more honest, statistically-driven real estate discussion in my next 100 columns!